Unisys Corporation New

Good day and welcome to the UNICEF's fourth quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Michaela Paworski, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for joining us. This morning, Unisys released its fourth quarter and full year of financial results. I'm joined this morning to discuss those results by Peter Altabeck, our chair and CEO. Deb McCann, our CFO, and Mike Thompson, our president and COO, who will participate in the Q&A session. As a reminder, certain statements in today's conference call contain estimates and other forward-looking statements within the meaning of the securities laws. We caution listeners that the current expectations, assumptions, and beliefs forming the basis of our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to differ materially from our expectations. These items can also be found in the forward-looking statement section of today's earnings release furnished on Form 8K and in our most recent Forms 10K and 10Q as filed with the FCC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures, such as non-GAAP operating profit or adjusted EBITDA that excludes certain items such as post-retirement expense, cost reduction activities, and other expenses the company believes are not indicative of its ongoing operations as they may be unusual or non-recurring. We believe these measures provide a more complete understanding of our financial performance. However, they are not intended to be a substitute for GAAP. The non-GAAP measures have been reconciled to the related GAAP measures, and we have provided reconciliations within the presentation. The slides accompanying today's presentation are available on our investor website. With that, I'd like to turn the call over to Peter.

Thank you, Michaela. Good morning, and thank you all for joining us to discuss the company's fourth quarter and full year results. Our fourth quarter performance caps a successful year for the company. Despite ongoing macroeconomic uncertainty, we delivered on our targets and progressed toward our long-term goals. In 2023, we grew full-year revenue by 1.8% as reported and 1.6% in constant currency. Our non-GAAP operating margin was 7% for the year and adjusted EBITDA margin was 14.2%. All of these metrics were above our original guided ranges and above the upwardly revised ranges we provided last quarter. Excluding license and support, revenue grew 4.9%, both as reported and in constant currency in 2023. During the year, we strengthened our foundation for growth in multiple ways. First, we demonstrated strong client loyalty, renewing 96% of the contract with more than 1 million in TCV that came up for renewal in 2023. We also improved our new business signings and pipeline in 2023. New business TCV grew 18% from the prior year, and we grew our new business pipeline by 19%. During the year, we also built awareness for our solution portfolio with clients, partners, industry analysts, and advisors. For instance, We improved our ranking in nearly half of the major 2023 analyst and advisor reports that had included Unisys in the prior year. We also forged several new partnerships, including two arrangements with consulting partners that are expected to drive referrals to Unisys as their preferred solution integrator. At the same time, we strengthened and expanded key relationships with hyperscalers, OEMs, and other alliances. Finally, We made investments in innovation to expand our next-generation solutions and advance industry-specific solutions such as Unisys logistics optimization. These accomplishments support future growth and advance us toward our long-term goals. Before Deb reviews our fourth quarter and full-year financial results, I will provide an update on some of our leading indicators and key strategic initiatives, beginning with client signings. Fourth quarter TCV increased more than 300% sequentially and more than 50% year-on-year, resulting in a full-year TCV increase of 3%. Excluding LNS, fourth quarter TCV was up more than 300% sequentially and 135% year-for-year, bringing full-year ex-LNS TCV growth to 27%. Fourth quarter new business TCV, which consists of expansion, new scope, and new logo, increased approximately 50% sequentially and 80% year over year. New business TCV during both the quarter and the year was primarily driven by growth with existing clients. Among our notable client wins for the fourth quarter was a five-year renewal and new scope contract with a leading biotechnology company, encompassing both DWS and CA&I solutions. This contract includes new scope elements, including communication and collaboration technology support, software asset management, and mobile expense management. Turning to our pipeline, our total company and XLNS qualified pipelines are relatively flat year over year, a strong result given healthy fourth quarter signings and the headwinds from fewer expected scheduled renewal signings in 2024. XLNS new business pipeline grew 19% year over year. Within our new business pipeline, we're seeing encouraging signs with prospective clients. Our new logo pipeline is up 32% year over year. Several key 2023 go-to-market initiatives have contributed to the quality and strength of our pipeline. especially our new logo pipeline. In our direct sales teams, we introduced new pricing tools, training, and standardization that has brought increased rigor and speed to our proposal, pricing, and review processes. For 2024, we have further refined our commission structures to better align incentives with key objectives, such as cross-selling and growing certain next-generation solutions. Our marketing efforts are another key contributor to new business pipeline growth. Our digital marketing campaigns have improved visibility to both our portfolio and our thought leadership. This is most evident in the rankings and sentiment toward Unisys among analysts and advisors that influence client purchasing decisions. As I mentioned earlier, our 2023 ranking improved in nearly half of the major analyst reports in which we appeared in the prior year. And we received new leader rankings from highly regarded firms such as Avasant, Everest, and ISG. We were also included as a leader or major player in new IDC reports in digital workplace and application monetization. The results of our annual analyst and advisor perception survey, which we commissioned through an independent research firm, further validate our gains with industry influences. For example, this year, more than half of respondents view Unisys digital workplace market vision as better than our competitors of 28 points. And almost three-quarters of respondents recently recommended Unisys to a client, an increase of 14 points in influencer advocacy. I'll now discuss XLNS pipeline and client activity in each of our segments. DWS pipeline is up 15% year-over-year, including more than 100% growth in our modern workplace pipeline. We're seeing growing interest in intelligent solutions, such as our smart PC refresher offering. We also have several large new opportunities in traditional workplace services. We believe our commitment to delivery excellence in mission critical services is differentiating Unisys within the DWS market. Our CA&I pipeline is also progressing, up 3% year over year despite more than 80% growth in 2023 signings. Demand tied to public sector digitization is leading to new opportunities. For example, we have several prospects seeking to modernize licensing and permitting, as well as identity access and management platforms. We also have several opportunities to help clients modernize healthcare, higher education, and justice-related record management systems. EMEA is an emerging bright spot within CA&I, where pipeline grew nearly 60% year over year. We deployed client technology officers on key accounts in the region, replicating a model we rolled out in DWS in that region. Incorporating client technology officers brings thought leadership to the forefront of our conversations with these clients. In the specialized services and next generation compute portion of ECS, we expanded our product portfolio in 2023 with enhancements to our existing cargo portal and the launch of Unisys logistics optimization. We also advanced development of more early stage industry offerings for banking and financial services clients. Earlier this year, we integrated Unisys logistics optimization with our first pilot clients cargo management system and completed a successful pilot using live data within a test environment. Currently, we are moving into production with our clients live environment. Given the early signs of success and strong market demand, We are rapidly accelerating our commercialization efforts and formalizing our partner pricing and channel strategy. Across the company, clients are continuing to adopt, explore, and experiment with artificial intelligence, including generative AI. Our effort here centers on using AI to advance business outcomes, such as accelerating revenue and product development, reducing R&D and SG&A expenses, and improving customer or employee satisfaction. We're also supporting our clients' efforts to develop their own AI strategies and upskill their talent. For example, in DWS, we are consulting with clients on their training, measurement, and business case creation for generative AI tools. We view AI as a powerful tool to help our clients and ourselves achieve breakthroughs faster, better, and more efficiently than before. We are focused on expanding and infusing AI into new and existing solutions rather than selling standalone AI solutions. At a high level, there are three key elements to our approach to data and AI. The first is what we call insights and relationships. We have many high quality clients, many of which have decades long relationships with Unisys. Intimate understanding of our clients' most important business aspirations and challenges. coupled with an eye to emerging industry trends relevant to the client, are critical to identifying the highest value use cases for AI and helping our clients navigate AI investment opportunities. This is complemented by our deep industry domain expertise. Second is capability creation, where we accelerate solutions that yield the greatest impact for our clients. This approach also includes techniques to make data actionable to enable faster realization of benefits of AI and data analytics. We continue to evolve and utilize the best tools, engineering talent, advanced models, and architectures, as well as those of our alliance partners. The final element is delivery and realization. Here, our clients embrace the AI-powered solutions we deliver to achieve their strategic objectives and ambitions. Some solutions we're seeing client interest in are delivering personalized content to improve customer interactions, leveraging data and analytics and predictive modeling to increase factory or cargo productivity, or synthesizing law and regulations to increase compliance. Internally, we're applying the same approach. We're focused on using generative AI tools to speed delivery of solutions and to improve productivity within our delivery and corporate functions. For example, Our legal team deployed a new AI tool in the fourth quarter for initial document review, which has already reduced the document review resources required for certain matters. Regardless of the application, responsible AI, ethics, and compliance are strong guiding principles underlying our approach. Let's talk for a minute about Unisys logistics optimization. In general, we believe we're entering into a new period. where companies such as Unisys that are nimble, have an engineering core, and can combine capabilities such as AI and quantum in innovative ways will bring more relevant and compelling solutions to clients. Accessible data is critical to successful application of generative AI, and many of our clients are challenged by the complexity of disparate data sets siloed within their infrastructure estates. We believe we can bring clients economic value by helping them modernize their applications, minimize their technical debt and CapEx, and unlock the value inherent in their data. Unisys Logistics Optimization is an example of that. We can leverage a unique combination of advanced quantum computing expertise, AI, Acumen developed through our working structuring and building data sets, and decades of experience optimizing workflows within industries. We believe Unisys logistics optimization can serve as a blueprint for delivering tangible business value for our clients and for generating new revenue streams for Unisys. I would like to conclude with a brief update on how we are attracting, retaining, and developing our associates. In 2023, initiatives included global AI training and increased internal fulfillment. which sped up sourcing and helped reduce our trailing 12-month voluntary attrition to 12.4% at year-end, down from 18% last year. In 2024, we are strengthening our winning culture and sense of community. A top priority this year is the launch of a new career pathing program to empower associates to take control of their career development. It will also enhance our mobility platform by matching associates with roles that advance them towards their career goals. We're also modifying and enhancing our recognition and rewards programs to encourage associates to acknowledge each other's successes and career milestones. Lastly, we are launching a year-long events program to provide space for open discussions about our workforce experiences and challenges. With that, I'll turn the call over to Deb.